Roginsky: The Health Insurance Oligopoly

Julie Roginsky, CNBC Contributor

Friday, 18 Sep 2009 | 4:22 PM ETCNBC.com

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If you believe that meritocracy and competition are the cornerstones of a free market system, the current health insurance system under which we live is not for you. Despite the distortive cries of “socialism” and “government takeover,” every single bill that has been voted out of committee in both houses of Congress would do more to foster competition than the current status quo that is so vigorously defended by the supposed party of free enterprise.

Consider the health insurance status quo, as it exists today: according to the Census Bureau, 58.5% of us were covered through employer-based insurance in 2008. For most, that means access to one particular plan, which is as generous or as parsimonious as the employer chooses.

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Have a special medical condition that needs attention? You better hope your employer took it into account when selecting your insurance options for you. And because there is no real competition among many different carriers for business, the insurance companies know they can get away with hiking premiums, denying coverage and even engaging in rescission.

Is it any wonder that premiums for family coverage have increased a whopping 131% over the last decade? No other industry, when forced to really compete for business, would ever provide such shoddy customer service while concurrently raising its rates so drastically.

A major cause of these burdensome premium hikes is the tremendous monopolies enjoyed by insurance companies across the country. Two large insurance companies cornered 98% of the market in Hawaii 2007. In California, the most competitive of the states surveyed, two insurance companies controlled 44% of the market. All across the United States, these insurers have no incentive to negotiate lower premiums because, like any monopoly, they know they are the only game in town.

Allowing insurance to be sold across state lines, moreover, would do little to lower the premiums for most people who enjoy comprehensive coverage, since insurers in states with lower prices would still have to raise premiums in states with more expensive insurance mandates. Simply put, if you live in New York, you can purchase insurance from a company in Louisiana, but that company would hike its premiums across the board to cover the mandates set forth by the state of New York.

The bottom line is that this lack of competition among insurance companies has led to the financial ruin of millions of Americans. More than 60% of those who declare bankruptcy attribute the reason to high medical bills. Of those, two-thirds have health care insurance. If these companies were really looking out for the health care of their consumers, which is the service they ostensibly purport to provide, would they be denying needed coverage to so many who eventually go bankrupt as a result?

Those who fear a public option, or even a public option trigger, are simply protecting the insurance oligopoly. Often, these are the same people shouting loudest about open markets and greater competition. Yet if insurance companies are not forced to compete, there is nothing keeping them honest and it is the consumer, in the end, who ends up shouldering the burden.

The status quo has resulted only in runaway costs, worsening care and financial ruin for many of our families. Rather than being the socialist boogeyman perpetuated by its opponents, a public option would finally force the kind of competition for consumer business that any free market champion could embrace.

_________________________Julie Roginsky is a CNBC contributor who has extensive experience in government, politics and public relations on both the federal and state levels including serving as the Washington communications director for former Senator Jon Corzine.